The mechanical and electrical engineering and metal industries are largely affected by the new import substitution policy. The Industrial Policy Law (488-FZ) has created a basis for restrictions on the public procurement of foreign-made industrial products.
In addition, the Procurement Law (44-FZ) and the Law on Procurement by State-owned Companies (223-FZ) give preference to domestically manufactured industrial products in public tenders.
The Russian Government has also adopted the relevant action plans for import substitution which provide for a gradual reduction in the level of foreign-made industrial products used in Russia and their replacement by domestic ones by up to 50-100% by 2020.
- Industrial Policy Law (488-FZ);
- Procurement Law (44-FZ);
- Law on Procurement by State-owned Companies (223-FZ);
- Resolution of the Government of the Russian Federation No. 656 dated 14 July 2014;
- Resolution of the Government of the Russian Federation No. 719 dated 17 July 2015;
- Resolution of the Government of the Russian Federation No. 2744-r dated 29 December 2015;
- Resolution of the Government of the Russian Federation No. 2781-r dated 31 December 2015;
- Order of the Ministry for Economic Development of the Russian Federation No. 155 dated 25 March 2014;
- Order of the Ministry for Industry and Trade of the Russian Federation No. 650 dated 31 March 2015;
- Order of the Ministry for Industry and Trade of the Russian Federation No. 651 dated 31 March 2015;
- Order of the Ministry for Industry and Trade of the Russian Federation No. 652 dated 31 March 2015;
- Order of the Ministry for Industry and Trade of the Russian Federation No. 653 dated 31 March 2015;
- Order of the Ministry for Industry and Trade of the Russian Federation No. 654 dated 31 March 2015.
44-FZ and related regulations affect state and municipal authorities.
223-FZ and related regulations cover state-owned companies (i.e. companies that are controlled primarily by state or municipal authorities) as well as private companies that implement investment projects subsidised by the Russian state and listed in the Register of Investment Projects (“Listed Companies”).
Order No. 155 contains a list of domestic industrial products which are subject to general preferential treatment (i.e. a 15% pricing preference over foreign-made products) for public procurement purposes.
Resolution No. 656 also lists industrial products that cannot be admitted to public procurement if they do not originate from Russia.
Resolutions No. 2744-r and No. 2781-r apply to state-owned companies and Listed Companies and list industrial products which cannot be procured by such state-owned companies and Listed Companies without the consent of the Government Committee for Import Substitution.
Although neither 44-FZ nor 223-FZ formally introduce any prohibitions, restrictions or limitations with respect to purchases by private companies (save for express exceptions), in practice, however, it is becoming increasingly commonplace for some “quasi-state” large companies (in particular, in the oil & gas and railways industries) to set certain restrictions and limitations with regard to the foreign-made goods to be purchased on the basis of their internal regulations.
That said, some buyers are trying to overcome the restrictions by placing additional technical requirements on products to be procured in public tenders, which a priori can only be met by foreign-made products. However, the Russian anti-monopoly authorities are monitoring the situation in order to fight such offences.
Relevance for imports to Russia
If industrial products are listed in Resolution No. 656, they may not be imported to Russia for public procurement purposes. Importation and use of such industrial products for any other purposes are not restricted.
Criteria for obtaining a certificate of origin
The country of origin of industrial products is determined in accordance with the general rules and criteria of sufficient processing as established by the CIS Agreement “On the Rules for Determining the Country of Origin of Goods in the CIS” dated 20 November 2009 and applicable in the Eurasian Economic Union (the “EEU”).
For some types of industrial products there are, however, specific criteria established by Resolution No. 719. They vary depending on each type of product. The most common criteria include the requirements that:
- certain industrial operations must be performed in Russia;
- a manufacturer must have sufficient rights to the relevant design and technical documentation;
- the percentage of foreign-made components used for manufacturing the product must be gradually reduced from 50% to 10%.
The affected entities should thoroughly analyse the market’s importance. The crucial points when deciding whether to localise industrial production in Russia are the importance of the market as well as the efforts required to produce domestic goods that are sufficiently processed to obtain a certificate of Russian origin or confirmation from the Ministry for Industry and Trade of the Russian Federation (if applicable).
This article is a part of a series based on the publication "Import Substitution in Russia" which we compiled for the Swiss embassy in Moscow. To learn more, register for the webinar on 14. September with Dr. Thomas Heidemann.